Interview with Mark Livingstone, CEO, Pharmacy2U

Pharmacy2U has long been the bête noire of the sector, yet the business has ambitious plans and Mark Livingstone wants to change its image. Interview by Arthur Walsh and Richard Thomas

Right from the outset of the interview, Pharmacy2U chief executive Mark Livingstone is clear on his message and it might come as a surprise to many: we wish to embrace community pharmacy and while online pharmacy is here to stay, we have no plans to displace the bricks-and-mortar network.

Livingstone first dipped his toe into pharmacy waters in early 2015 when he and business partner Gary Dannatt bought into the online pharmacy, Chemist Direct.

Then, in May 2015, Livingstone heard about a Leeds-based online pharmacy called Pharmacy2U, set up by pharmacist Daniel Lee in 1999. Keen to learn more, he wasted no time in arranging a face-to-face meeting. Livingstone felt that while its core concept was strong, the company’s approach to business at the time – shelling out on direct marketing and call centres, no consumer marketing, no access to private equity – was bound to fail.

Livingstone’s warnings – and his proposal to merge Chemist Direct with Pharmacy2U – met with initial resistance. However, in late 2015, Pharmacy2U hit, in his words, “two massive icebergs”.

These were the Information Commissioner’s Office issuing a £130,000 fine for unlawfully selling patient data to direct marketing companies and a warehouse move that saw the internet pharmacy unable to dispense for two weeks over Christmas because of technical problems. This resulted in the NHS telling the business it needed to “raise its game”.

Livingstone’s merger proposal now had buy-in at board and investor levels, leading to a deal going through in July 2016 that saw him take on the role of chief executive officer of the merged company.

"I definitely accept that at times we have possibly misled people and I’m not proud of it"

Weaknesses in pharmacy model

Now Pharmacy2U needed to get the public on board. Its market research had found that while community pharmacies offer “some amazing customer experiences”, there are weaknesses and “one shouldn't be too romantic about the idea that all patients have a special, caring relationship with their pharmacist", Livingstone believes. This might come as a surprise to proponents of the face-to-face accessible contact that community pharmacists provide.

Nevertheless, some focus groups said they got fed up of queuing in pharmacies or were often unable to see the same pharmacist because their pharmacy used locums. Some patients on multiple medications said they felt embarrassed at being handed large bags of drugs in front of their neighbours.

The opportunities for a different approach were apparent. For all the innovation that has taken place in pharmacy, the basic model whereby patients receive their medicines “hasn’t changed in almost 300 years”, he says.

Pharmacy2U’s business model – liaising with patients’ GPs, dispensing centrally and delivering direct to people’s homes – seemed to have appeal to consumers and investors. And telling people that as a single-premises business it could potentially save the NHS hundreds of millions of pounds was added incentive.

It was time for Pharmacy2U to go to the next level. Backed by some initial investment from private equity firm the Business Growth Fund, a new, beefed-up multi-platform marketing strategy kicked off in early 2017.

It seems to have worked. Pharmacy2U now recruits around 35,000 new patients a month through online and TV advertising, as well as its oft-criticised door-drop leaflets – “a much smaller part of our [patient recruitment] mix now”, according to Livingstone.

Pharmacy2U timeline

1999

2014-2015

2015

2015

2016

2017

2017-2018

2018

2018

2018

2018

2018-2019

a

a

Pharmacist Daniel Lee launches Pharmacy2U at the height of the dot-com boom

Total items dispensed: 591,712

Fined for selling patient data

Technical problems leave patients without their medicines over Christmas

Company unveils a £3.5m "state of the art" prescription fulfilment facility in Leeds

Online clinic found unsafe, not effective and not well led by CQC. Received clean bill of health the following year

Total items dispensed: 2,925,671. Number of MURs: 1

Told to pull adverts by ASA for making "unrealistic" savings claim for NHS

Loses legal battle for contact details of NPA members

Secures £40m of extra equity investment. Plans stepped up for new dispensing facility in Leicester

Latest financial results show revenue increased by 67 per cent to £43m. Made loss of £12m

Average monthly items dispensed (latest figures): 406,845

Going for growth

In March last year Pharmacy2U secured a second round of equity investment worth £40m from G-Square Capital. The company will soon bring on stream a new facility in Leicester, giving it the capacity to dispense up to 7.5 million items a month. This figure (which Livingstone expects to hit “over time”) would meet the company’s growth ambitions, presumably by reducing unit costs by as much as possible. “Our aim is to have a 10 per cent share of the market – no more, no less. It is a scale game. You either go big or go home.”

To achieve this market share, would the company need to significantly step up its infrastructure development? And could it do this on its own, or would it be a feasible investment proposition for a larger partner – Amazon, for example? After all, Livingstone’s business CV might suggest this is a possibility at some point down the line.

Pharmacy2U is set to open a new facility in Leicester

“No,” he says. “We will hit 10 per cent via a phased expansion of our new site in Leicester and our existing site in Leeds. We think we know more about how to do this than anyone else – mostly through learning from our mistakes – so I can’t see us needing or wanting to partner.”

Notably, in 20 years of existence, Pharmacy2U has never turned a profit. “Pre-marketing, we are just about profitable now” – but the company can’t afford to let up on the marketing front because of patient attrition (when customers die or choose to leave the online pharmacy). The business “can be a money pit if not managed properly”, but it must keep growing in order for investors to see it as a credible proposition, he says.

Looking to the future, “we want to be over £100m revenue in our next financial year”. According to Pharmacy2U’s last Companies House filing, in the year to March 31, 2018, the company made £43m in revenue (up from £26m in 2017) with gross margins in the region of 24-25 per cent. “We think within two to three years we’ve got a shot at being profitable – but it’s a long walk.”

The group made a loss of £12m in its last financial year, down from £20m in 2017, but prescription item numbers are rising rapidly. The number of items dispensed in 2017-18 fell just short of 3 million (+55 per cent year-on-year), a figure that was on the verge of being surpassed after just seven months of the current financial year. The company now dispenses approaching 500,000 items a month.

Controversial claim

The question of just how much Pharmacy2U’s model stands to save the NHS has been highly controversial. The National Pharmacy Association and others complained to the Advertising Standards Authority over adverts on TV and Twitter in late 2017 that included the claims “Saving...the NHS over £300m a year on prescription costs”, making it “better for the NHS”.

The complaint was upheld by the ASA on the grounds that this claim was misleading and the watchdog told the company to pull the adverts. The ASA recognised that online repeat prescription services had the capacity to save the NHS money but said that, “we considered that Pharmacy2U’s calculation, based on the annual savings if all pharmacies were paid the same rate as Pharmacy2U, was not currently a realistic or likely scenario”.

While the ASA acknowledged that Pharmacy2U’s location in a single premises “has the capacity to save the NHS money”, it pointed out that the “overwhelming majority of NHS prescriptions” are still dispensed by high street pharmacies.

“People’s choices about where to obtain their NHS medicines ought not to be skewed by misleading and unsubstantiated claims,” the NPA said after the ruling. “Neither should local community pharmacies be put at a disadvantage by such advertisements.”

Pharmacy2U changed the wording used in its advertising following the ruling but Livingstone stops short of contrition and actually still stands by the claim. “We have verified the calculation, which had been approved by the NHS. If all repeat prescriptions were dispensed and remunerated through our one-premises model it would be 15-20 per cent cheaper for the NHS” – although “obviously we aren’t doing 100 per cent of patients’ repeat prescriptions”. Even the health secretary has confirmed that distance dispensing at scale can bring efficiencies, he says.

When it is put to him that community pharmacies are concerned that Pharmacy2U is effectively proclaiming a world in which they have all been obliterated, he appears keen to mend fences – and this is where it gets interesting.

“It is not my intention to put contractors out of business. I’ve huge respect for community pharmacists but we have legitimacy in this sector and expect to be treated fairly and squarely along with everyone else.”

What does he mean by that? Livingstone says the future of pharmacy is “all about omnichannel” distribution networks with “us saving something somewhere in the ecosystem” that can be put back by the Government into pharmacy services.

His broader point that a disruptive business idea can eventually arrive at an equilibrium with a more traditional model has some validity (think of how print book sales have stabilised after the Kindle craze turned out not to have universal appeal).

However, even if he is sincere, the idea that any savings from online dispensing would be neatly rerouted into pharmacy services seems fanciful – and the existing community pharmacy network would inevitably take a hit if Pharmacy2U meets its 10 per cent market share target.

Bruising battles

The online pharmacy has had several bruising skirmishes with the sector. Most recently, there was the court case with the NPA over leaflets and posters distributed to its members attacking Pharmacy2U’s conduct in recent years, such as the 2015 data breach (“Pharmacy2U is NOT your local pharmacy,” the large print declared).

Pharmacy2U’s right to obtain the contact details of pharmacies that received the materials was not recognised by the judge who considered the case. However, she felt that P2U had an arguable claim of trademark infringement and could pursue the matter in the High Court if it wished.

While Livingstone “doesn't revel” in court cases, “I’m no stranger to having a fight”. He feels the NPA’s “trawling up history that has nothing to do with me personally” was unprompted and aggressive, as failings like the patient data sale did not take place on his watch.

When it is put to him that Pharmacy2U’s bid to contact individual pharmacists was seen as an attempt to threaten and intimidate, he says he now understands this “in hindsight”.

How frustrated is he that his company struggles to shake off the mistakes of the past, the data sale being the prime case in point? The answer is – very. In fact, it was probably a major factor in challenging the NPA in court in the first place.

“I get really upset about things that happened that were not on my watch, not in my control, are not part of the story now and are completely at odds with the professionalism of the way we do business. How long am I going to be saddled with that?”

Misleading marketing?

Accounts of patients coming to pharmacies enquiring about their prescription, only to find they had unwittingly signed up to the distance dispenser, are common lore. Does Livingstone accept that some of Pharmacy2U’s marketing has been confusing and misleading to patients?

“I definitely accept that at times we have possibly misled people and I’m not proud of it.” These marketing practices are not part of the company’s present strategy, he insists.

Marketing costs are high and if patients leave the business because of dissatisfaction with its offering, that investment is effectively wasted. “It just doesn’t add up; you haven't got a sustainable model.” He adds that cold calling has never been a Pharmacy2U tactic.

What about another common complaint, often seen on social media – that dispensing lead times are too long and items are frequently missing from patients’ prescriptions, leaving local pharmacists to pick up the pieces. Does Pharmacy2U keep figures for owings or incomplete prescriptions? “It is something we monitor on a daily basis – we don’t disclose them.”

"I’m not defending the data sale. It was totally unprofessional and an appalling lack of judgement"

He points to the company's five-star Trustpilot rating to back its performance.

Customers like what we are doing, he says, and he’s happy with current service levels. That Trustpilot, like other review websites, has a reputation for fake reviews is not mentioned. And if the company does publish the results of the patient questionnaire, a mandatory requirement of the Quality Payments Scheme, we couldn’t find it. Nevertheless, he claims he is “obsessed” with customer feedback.

When put to Livingstone that pharmacists who encounter patients with an issue with their prescription sent to Pharmacy2U then find it extremely difficult to get that prescription back so they can deal with the problem – kept hanging on the phone for ages; the prescription only released after much pleading and with the patient's verbal consent – he says this is not something he’s aware of. But if it happens, “we would make damn sure” to address it.

There have also been suggestions that Pharmacy2U ’cherry picks’ prescriptions, sometimes not dispensing costly items. Livingstone is emphatic this does not happen.

Leading the charge

Pharmacy2U seems to be an excellent case study of how not to win friends and influence people – except that is not entirely true. While its aggressive marketing and push for growth make it a thorn in the side of many community pharmacists, its message about efficiencies and cost savings is clearly striking a chord with Government.

Like it or not, online pharmacy is here to stay – and loss making (for now) Pharmacy2U is leading the charge. Service levels may be variable in the eyes of some, but patients are voting with their clicks.

The challenge for the sector is how it can integrate and accommodate the online and established pharmacy models in a way that doesn’t undermine the bricks-and-mortar network, with all the strengths of accessibility, coverage and face-to-face care that it provides.

Mark Livingstone is on a mission to haul his company into the black and reshape pharmacy at the same time. There have been a few wobbles along the way – the company’s credit rating took a hit last year, for instance – but there is now real momentum in the business. Love them or, more probably, loathe them, Pharmacy2U is increasingly a major, influential player in the market.

Mark Livingstone held senior positions at Woolworths and entertainment company Telstar before moving to Lego where he was worldwide MD of the company's interactive division. After a decade there he got into a succession of online start-up ventures – LoveFilm (sold to Amazon for £200m in 2011), Graze and Scoot before joining Pharmacy2U in 2016.

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